What is a budget? How is it used by a business firm?

Question

Quizplus · Accepted Answer

The Answer is A budget is a financial plan that outlines the expected revenues and expenses of a business over a specific period of time, typically a year. It serves as a roadmap for the company's financial activities and helps in managing and controlling the firm's resources.

In a business firm, a budget is used in several ways. Firstly, it helps in setting financial goals and targets for the organization. By estimating the expected revenues and expenses, the firm can set realistic targets for sales, production, and cost control. This provides a clear direction for the company and helps in aligning the efforts of different departments towards common objectives.

Secondly, a budget is used for financial control and monitoring. By comparing the actual financial performance with the budgeted figures, the management can identify any variations or discrepancies and take corrective actions. This helps in ensuring that the company's financial resources are being used efficiently and effectively.

Additionally, a budget is used for decision-making purposes. It helps in evaluating the financial feasibility of new projects or investments and in allocating resources to different departments or activities. By having a clear budget in place, the management can make informed decisions about resource allocation and prioritize the use of funds.

Overall, a budget is an essential tool for a business firm as it helps in planning, controlling, and decision-making. It provides a framework for managing the company's finances and ensures that the organization is working towards its financial objectives.

What Is a Budget? How Is It Used by a Business